What's the Big?

July 24, 2010

Summer Upstate

It must get really boring up in Albany this time of year. Nowhere to swim, nowhere to eat. Just a lot of concrete. To make the time pass a little more quickly, one favorite pastime appears to be thinking up laws to drive folks in New York City completely nuts. One piece of legislation that illustrates that point, is the ban on short term rentals of less than thirty days, recently passed by the New York State Assembly and Senate and signed into law by Governor Paterson yesterday.

July 23, 2010: A Day that Will Live In Co-op and Condo Infamy…Or Maybe Not

As Frank Lovece points out in his July 14, 2010 Habitat Magazine article in opposition to the proposed New York State ban on rentals, State Senator Liz Krueger, a sponsor of the bill, thought the ban would be a good idea in all multiple dwellings in New York, which would include co-ops and condos. The primary targets of the bill are those classic New York reptilian landlords who convert their rental housing stock into illegal hotels, jamming tourists into bunk beds along with the bedbugs. Caught in the crossfire of the new legislation, are co-op and condo boards that will no longer have the right to allow short term rentals. But now that the legislation has been signed into law, is it really a big deal for co-ops and condos?

First, Some Background

Almost all residential rental leases, both regulated and free market, prohibit the tenant from subleasing his or her apartment or assigning the lease without the prior consent of the landlord. At least in theory, short term rentals are not permitted without prior approval. A condo owner usually has the right to rent his or her apartment, but the vast majority of condos require the lease to be for a duration of more than thirty days and usually no less than twelve months. Co-ops are even more restrictive. Many co-ops prohibit subletting completely and some only allow subletting for a limited period of time and for specific reasons (such as taking a job out of town or financial hardship). In my experience, there are very few co-ops or condos that permit or encourage short term leasing of any kind. So, although the statute would remove the right of co-op and condo boards to allow short term rentals, the enactment of the law will have a negligible impact on day-to-day life in the average co-op or condo.

It’s Easier in Barcelona

Ironically, and just to ratchet up the frustration, a piece by Benji Layado in the Sunday New York Times Travel section on July 18, 2010, entitled “Europe Without Hotels”, sings the praises of “a new breed of website”, that locates apartments and "spare rooms" for travelers all over Europe, at a deep discount from hotels. And it’s not just overseas. As the article points out, there are over 3,500 short term rentals available online in New York State alone. Taking the cost of a hotel in Manhattan into consideration, the concept of staying in a one-bedroom co-op or condo in Tribeca for a fraction of the cost of a hotel, seems like a win-win situation for both the apartment owner and the tourist. But then again, there are risks.

Short Term Rentals are Actually a Bad Idea

Having lived in a co-op where a few of the residents used their apartments as bed and breakfast accommodations (with tourists often speaking Danish in the lobby, as opposed to eating one), my own anecdotal conclusion is that nothing good can come from giving strangers access to your apartment and to your building without the knowledge and consent of co-op or condo management and appropriate vetting of the proposed tenant. Particularly in New York, a target of mayhem all too often, health and safety concerns far outweigh the economic benefits to the few individuals who are leasing out their apartments on a short-term basis to make a few bucks. When you look at the risk and reward, the answer in my view is obvious.

But Would the Statute Really Change Anything?

Since short-term rentals are already contractually prohibited in most leasing situations, making the practice “illegal” really won’t change things for co-ops and condos. Most apartment owners would never consider renting out their spaces short-term in the first place, and those individuals who are currently doing so in violation of the co-op or condo governing documents, will probably continue the practice unabated now that the ban is official. In any event, as Senator Krueger is quoted as saying in Lovece’s article, “The city is not going to knock on doors.” So what’s the big?

Residential Reality: Albany Has a Disconnect with Ownership Housing Stock

It doesn’t seem like Albany understands how co-ops and condos actually operate in New York City. Excluding co-ops and condos from the prohibition, just as brownstones are excluded, would have made much more sense since there are already many layers of review and approval required before an apartment owner can sublet or rent his or her co-op or condo. With all the tax dollars that go upstate, it might be nice if a little more deliberation went into legislation that will no doubt make life in Gotham that much more annoying. With the enactment of the short term rental ban, it appears that Governor Paterson has decided to continue a trend that evidences a legislative indifference to the thousands of New Yorkers who live in co-ops and condos.

Finish your due diligence, it’s good for you...

Asked and Answered

I don’t smoke, but the smell of smoke is wafting into my apartment from my neighbor. Is there anything that can be done to remedy this condition?

My mortgage lender has informed me that the cooperative in which I am purchasing an apartment has inadequate insurance coverage and has requested that the co-op increase its coverage to meet the bank’s new minimum requirements. Can the bank withdraw its underwriting due to a lack of insurance coverage by the co-op?

A co-op owner asks: I have found that maintenance is usually higher in coops than in condos because of the contribution by the shareholders to the building's underlying mortgage payments. In condos, the unit owners only pay for real estate taxes and common charges for common areas. Will the monthly maintenance be reduced after the underlying mortgage has been fully amortized?

We just submitted the Board package and we realize that we neglected to disclose a lawsuit against my husband’s company, in which my husband is named as a defendant? The lawsuit is covered by insurance and my husband is indemnified from liability by his employer. Should we notify the managing agent and amend the purchase application?

We are negotiating the contract and we just found out that there is a substantial assessment that will go into effect the month that we close on the purchase. Should the assessment be deducted from the purchase price at closing?

I am buying an apartment in a small building and I just found out that the elevator is being renovated and will be out of service for three months. Do I have to close if the elevators will not be operational on the closing date?

My husband and I own a co-op and we would like to transfer the shares to an irrevocable trust that we recently created for estate planning purposes. Will our cooperative allow us to make that transfer?

My boyfriend and I are interested in buying our first apartment in a new construction condominium. Our mortgage broker tells us we should qualify for a 90% loan, but it will be a close call for the bank. The sponsor wants us to sign a “no contingency” contract. Is that a good idea?

We are considering a condo purchase in a new development that is only 25 percent sold. There is a bank that has approved the project and will make the loan, but should we be concerned about the number of units that the sponsor still has to sell?

We are buying an apartment that has been extensively renovated. Among other things, the size of the master bath was significantly increased. Can we rely on a representation in the contract that all required approvals were obtained from both the Cooperative Corporation and from the New York City Department of Buildings?

We received a draft of the contract of sale for the cooperative apartment we are buying and our social security numbers are on the front page! Our attorney told us that we will have to provide our identification numbers to the managing agent for a credit check as a part of the Board package, so it’s not a big deal. Do we have to list our socials on the contract?

I am considering an apartment in a new construction condominium. There is park under development by New York City that will greatly enhance the value of the condominium when it’s completed. Although the sponsor’s salesperson indicated that the first phase of the park will be completed in the next year or so, the Offering Plan contains a “Special Risk” that states that the sponsor gives no assurance as to when, if ever, the park will be completed. Who and what should I believe?

We are in negotiations to purchase a co-op apartment on the Upper East Side. Our lawyer reviewed the minutes and discovered that the building has a bedbug infestation. Should we go forward with our purchase?

At my closing, I had to reimburse the Seller for his New York State “STAR” rebate that appeared on the maintenance statement for the month following the Closing. What exactly is the STAR rebate and will I be able to obtain the rebate as well?

I just found out that the seller will be unable to close for an additional two weeks. As a result, I will have to extend my rate lock, at a cost of $1,200.00. Is the seller obligated to reimburse this cost?

We are selling our apartment to our neighbor, but our neighbor can’t afford to purchase our apartment unless she sells her apartment. Her lawyer wants the contract to provide that the purchase of our apartment is contingent upon the sale of her apartment. Our lawyer is advising us against including a provision that makes the transaction contingent on the sale of the buyer’s apartment. Should we go along with the contingency?

We are selling our co-op and the buyer is not obtaining a mortgage in connection with the purchase. The contract required the Board package to be submitted within 10 business days after the fully-executed contract was returned to the buyer. The buyer is two weeks late in submitting the package. Is the buyer in default?

I’m selling my condo and I have not been able to pay my common charges for the past six months (I lost my job). I have a buyer for the apartment, but the Board of Managers will not release the Waiver of the Right of First Refusal, unless I pay the outstanding balance of the common charges. I’m between a rock and a hard place, as I don’t have the money. What should I do?

I am combining two adjacent apartments that I own and I want the co-op to issue one stock certificate for both apartments. There is an outstanding UCC lien against one of the apartments. The other apartment is owned free of any liens. Can the co-op object to the combination?

My attorney asked me to contact the managing agent to verify the maintenance and assessment information that's disclosed in the contract for the apartment I intend to purchase. Isn't that my attorney's job?

Our application to purchase a co-op was turned down by the Board without an interview. Although our attorney asked the managing agent to disclose the reasons for the Board’s decision, none were given. Can the Board just turn our application down without any explanation?

I am buying a co-op in Manhattan. The managing agent is located in Brooklyn and refuses to send a closing representative to the attorney’s office for the buyer or seller located in Manhattan. Will everyone have to go to Brooklyn for the closing?

We are purchasing a condo that was occupied by a tenant at the time the contract was executed. We just did the walk through and there is damage to a portion of the floor that was hidden by the tenant’s furniture. Are we entitled to a repair credit at Closing?

A loan commitment was issued, but the bank requested an explanation for a $14.00 missed credit card payment that occurred nine years ago. Could the bank withdraw its commitment as a result of this missed payment?

A leaking pipe inside the wall of my co-op was recently replaced. The following month, my maintenance account was charged $1,000.00 on the theory that the pipe only serviced my apartment. Am I responsible for this repair?

We submitted our Board package a month ago, but the Board has not scheduled an interview or asked for any additional information. To make matters worse, the managing agent won’t give us any indication as to what’s going on. Is there anything we can do?